Anglo lowers diamond and iron output but remains on track overall
Anglo American lowered full-year production targets at two key subsidiaries in diamonds and iron ore but kept its group forecast “broadly” intact.
Anglo, which is listed in London and Johannesburg, noted, however, that its output when measured as a copper equivalent rose by 2% in the quarter to end-June, with its historically difficult Minas-Rio iron ore mine in Brazil ramping up production ahead of target.
Anglo said the group production increase was based on normalised figures to account for the closure of the Voorspoed diamond mine in SA and the move to a toll-treatment agreement with Sibanye-Stillwater at its Anglo American Platinum subsidiary from a purchase-of-concentrate arrangement.
When Anglo releases its interim results on July 25, analysts will want updates on the new $5bn Quellaveco copper mine in Peru, which the company has started building using $500m paid upfront by Japan’s Mitsubishi, the owner of 40% of the mine.
“We do not expect Anglo American to increase dividends at the half-year results, with capex and net debt increasing in the second half as the Mitsubishi/Quellaveco earn-in rolls off, which may temper some of the enthusiasm during results,” said RBC Capital analyst Tyler Broda.
“Nonetheless, strong diversification and sector-leading growth leaves Anglo American as our preferred diversified exposure in the medium term,” he said, noting the company had posted a “solid” set of second-quarter data showing more consistency across its operations.
The two stand-out updates in the production data were the reductions in diamond output at De Beers and iron ore from Kumba Iron Ore.
“We remain broadly on track overall to deliver this full year’s production targets, with an increase to Minas-Rio guidance offsetting two reductions at De Beers and Kumba Iron Ore,” said Anglo CEO Mark Cutifani.
De Beers, which is 85% owned by Anglo and is the world’s largest source of diamonds by value, would reduce output to the bottom end of its 31-million- to 33-million-carat target to match weak market conditions, particularly for smaller, lower-value diamonds.
De Beers noted a 14% drop in second-quarter production to 7.7-million carats, which brought interim output to 15.6-million carats, an 11% decline year-on-year.
Total sales volumes for the interim period fell 12% to 16.5-million carats, with average prices dropping to $151/carat from $162/carat in the same period a year earlier.
“De Beers, in view of prevailing market conditions, will continue to produce to demand for the year,” said Cutifani.
Kumba, which is SA’s and Africa’s largest iron ore producer, reported a difficult first half, with plant problems at both its mines in the Northern Cape.
Anglo lowered Kumba’s full-year production forecast by 1-million tons to 42-million-43-million.
This decline will be offset by a 1-million ton rise in the production target at the Minas-Rio mine, which was shut for an extended period in 2018 to repair a leaky 529km pipe linking the mine to a harbour.
Anglo raised output at Minas-Rio to 19-million-20-million tons for the year.
In other key divisions, copper production for the interim period increased by 2% to 320,000 tons and platinum output was kept steady at 992,000oz. Palladium production dipped 4% to 674,000oz because of the toll-treatment arrangement with Sibanye.